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Tuesday, August 08, 2006

Bank of America Closes In On The Lead

Stocks: (BAC)(C)

When Citigroup hit its intraday low of $48.11 yesterday and B of A hit its intraday high of $52.36, Citi was within a whisker of losing it lead as the largest market cap bank in the U.S. With a market cap of $238 million, Citi’s lead is down to about $1 billion.

B of A has had a hot streak recently. The company raised its dividend 12% last month. In addition to it solid consumer banking business and solid results from the assets from the MBNA credit card base, B of A has begun to strengthen its corporate and investment banking businesses.

The concerns that surround any large bank in America now are that the M&A and investment banking businesses could be hurt by high interest rates and a falling stock market. If this happens at the same time that consumer credit falls apart and the real estate market goes into a tail spin, the large banks could face a “perfect storm”.

Unfortunately, while this scenario looked like a remote possibility a year ago, it is not one that can be ruled out over the next year. The stock market has not been this shaky in several quarters, and it will not take much to push the consumer real estate market into a position where home prices in most large markets are actually beginning to drop for the first time in more than a decade.

B of A’s overtaking of Citi may give the financial giant some bragging rights, but money center banking may well be reaching its high water mark. The economy is simple slowing too quickly to support ongoing strong results in future quarter. If things play out that way, the price of B of A’s stock, near its one year high at over $52 may be as good as its gets.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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